Edelweiss is bearish on Ipca Labs has recommended reduce rating on the stock with a target price of Rs 440 in its research report dated April 7, 2016.
Edelweiss's research report on Ipca Labs
Ipca Laboratories (Ipca) has announced that following a review of the FDA Warning Letter issued to the company recently, the Global Fund has decided to not allocate any Institutional Malaria volumes to it. This is a significant setback for the company. The development entails 2 adverse impacts: (i) expected earnings revival from Institutional Malaria business gets undone; and (ii) higher risk of other regulating agencies taking an adverse view on the company’s GMP compliance. Ergo, we cut our FY17/18E earnings 22%/21% and our new TP is INR440 (INR560 earlier). Maintain ‘REDUCE’. Ipca is the least preferred stock within our coverage.
There are multiple challenges ahead for Ipca with 3 of its facilities under import alerts and US business recovery uncertain as it entirely depends on further action by USFDA, both nature and timeline of which cannot be predicted. Additionally, management’s bandwidth split between various businesses/regulatory challenges could slowdown recovery. We maintain ‘REDUCE/SU’ with TP of INR440 (14x FY18E EPS).
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